Base Oil Report

The European Group I base oils market remains under pressure amid ongoing tight supply, with some saying that the market is difficult to predict at present as it continues to defy expectations.

Originally, players had expected tight market conditions to have eased by now as refineries have returned from maintenance and the summer holiday season has begun. However, this has not been the case. European refiners have returned from periods of maintenance but the availability of spot volumes in the European domestic and export markets remains extremely limited, with trade stagnating in the export market as a result.

European export market players have said that some refiners are focusing their production more on the domestic markets or on flexi-bag business instead of selling in bulk on the spot export market and that this is potentially behind tight conditions. There was also suggestion that the Group I capacity rationalisation seen in recent years was only just beginning to bite, with the effects now being felt because of a

number of maintenance outages taking place this year.

Demand for product was also said to be strong and this was absorbing any excess Group I volumes in the market. Some sources noted buying interest from the European market for Russian volumes because they were desperate for product. However, buying interest in the domestic Russian market shows no sign of abating, with 60% of a tender recently seen in the Baltic Sea export market going to this market. As a result, some sources see the Baltic Sea export market under an element of supply pressure too.

Further compounding tight conditions in both the Baltic Sea export market and the European export market was a buy tender for up to 60,000 tonnes of base oils, according to sources, which suggested this would contribute to ongoing tight conditions.

Domestic Group II base oils have also been experiencing tight market conditions as Europe is a net importer of this product and there had recently been

bouts of maintenance at refineries in the US. However, some improvement in supply was noted in the European market around the beginning of July.

The domestic Group III base oils market was seeing more balanced market conditions in comparison, amid improved availability of imports from Abu Dhabi, Malaysia and Korea.

Whether supply of other base oil grades will improve as the summer season progresses remains to be seen. Sources suggest that current market conditions, particularly in the European export market, are exceptional and make the market outlook impossible to gauge.

Sarah Trinder Senior Editor, Manager ICIS


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